Taking up a housing loan is no joke. It is a long-term commitment. Nowadays, it has become possible for people in their sixties or even seventies to acquire a loan as various financial institutions provide the opportunity.
You must have wondered at least once about what happens if a loan borrower passes away. Who pays the remaining repayment amount? And how are banks allowing elderly people to take up fresh loans? It would be naive to think that the bank forgoes the loan amount on the occasion of the borrower’s death.
Even the lenders who offer the best housing loan would never do so unless they are planning to run out of business. If you want insight into who repays the amount under what circumstances, read on.
Who will be held responsible for paying off the remaining debt?
In most scenarios, the legal heir, co-applicant or guarantor of the late borrower is expected to pay off the loan. In case they agree to pay, a new contract is formed. They can start paying EMIs after that. Once the deceased’s debts have been settled, the co-applicant/ legal heir gets the property deeds.
Suppose the guarantor has no financial capability to pay off the debt or is not in a position to take this responsibility. In that case, the lender is left with no option but to seize the property. Therefore, it is recommended to get your loan secured with loan insurance when you apply for a housing loan.
How can the lender help?
Whether you believe it or not, these financial institutions want to help you in a time of crisis like such. While the bank or NBFC cannot waive off the loan, they can certainly help ease the burden off the borrower’s family. If you make them aware of the situation and where you stand financially after the sole borrower has passed away, they can come up with a way to help you figure out the repayment.
They can consider restructuring the loan in a way where the house loan tenure is increased and the deceased’s family gets the option to pay lower EMIs. They can also delay a few EMIs or postpone the repayments for a while to give the bereaved family some time to gather enough finances.
When the borrower has co-applicants
Co-applicants/ co-signers/ joint-debtors are the ones who get turned into primary borrowers automatically if anything happens to the borrower. It becomes their sole responsibility to pay off the remaining debt to the bank in case the initial primary borrower dies. If the co-singers are not in a position to pay back, the bank/NBFC has full authority to file a lawsuit against them.
They are aware of this clause when they apply for a home loan as a co-applicant. Although the bank usually gives enough time and offers ways to help improve the situation, they can still proceed with the lawsuit in case of any failure in the repayment of the loan.
Under what circumstances is the family of the borrower liable to pay?
At the borrower’s untimely death, the housing loan automatically transfers to the legal heir or the co-applicant of the loan. As per the law, if there is no co-applicant, the remaining debt is the responsibility of the legal heir or the members of the borrower’s family. The bank or NBFC has the authority to sell any security or collateral if the family fails to pay off the dues or they are not financially strong enough.
Does housing loan insurance help if the borrower passes away?
Getting an instant home loan in this competitive market is easy because of the number of lenders available. However, getting a home loan is a huge responsibility. You surely do not want your loved ones to suffer when they are already grief-stricken. Taking informed decisions and being prepared for the worst is the way to go about it. Let’s understand how the repayment happens when you cover your loan under insurance.
Repayment if the loan was insured
The best home loan is the one you get insured on, as you do not want your loved ones to pay off your dues when you are not there. After the borrower passes away, their family should first inform the bank/NBFC about it and present their death certificate to them. The insurers clear any debts off the property and make it free of any monetary obligations. It only happens in case of natural death. The insurance companies make it clear at the time of taking the insurance.
Secured and unsecured home loan
While getting the cheapest home loan to buy your dream house, lenders may or may not ask you to secure it by mortgaging collateral on it. A secured loan is one where there is collateral involved. In unfortunate circumstances, such as when the borrower dies, and they do not have a co-applicant, the burden gets shifted on the family. If the family cannot repay the pending loan, the bank seizes the collateral to make up for the loan amount.
In case the loan was not a secured one, where there was no collateral associated with it, the financial institution can file a lawsuit to get back the loan amount. They also have the right to seize any other available assets and pay off the debt before allocating the asset as per the will of the deceased.
No one has seen the future, but what we can do is be better prepared for it. The process of applying home loan online is simple and enables you to take up the loan quickly. But that does not mean that paying off the loan will be as easy as applying for it, especially in the circumstances such as the borrower passing away untimely. It becomes the responsibility of the co-applicant or the deceased’s family to pay back the loan in such a scenario. Making arrangements while you are alive, like taking up insurance on your home loan, can be a decision that can save your family a lot of trouble.